Affordable Care Act: penalty vs cost of insurance

“How big is the penalty for not having insurance? If someone does not have health insurance after Obamacare (Affordable Care Act) goes into effect, how much will they have to pay in a penalty?”

Weighing the Options

Dear Weighing the Options,

The requirement known as the “individual mandate” that U.S. citizens and legal residents have coverage starts January 1, 2014. However, you can have three months of no coverage and still face no penalty. So the penalty does not start, in a sense, until you have three uninsured months.

Aside from those details, the penalty is the greater of 1% of your income or $95 per uninsured adult, $47.50 for each uninsured child, up to $285 per family. In 2015 and 2016, the penalty increases. The penalty is less expensive than buying insurance. People who have very low incomes are exempt from the penalty and in many states, would qualify for Medicaid anyway.

There are other things to weigh in to your decision besides the cost of insurance and the cost of the penalty. Being uninsured means that you would have to pay your own medical bills. If something terrible happened to you or a family member, you could end up draining your savings, selling your house, or working two jobs until you turn 80. According to some sources, medical bills are a very common reason that people file for bankruptcy.

Deciding whether to buy health insurance is not just about avoiding the tax penalty. It’s a much bigger financial decision. Naturally, if you have no assets, you risk less by going uninsured. On the other hand, you risk not being able to pay for care that you need